Binance CEO Changpeng Zhao, Other Exchange Leaders at Risk of Brazil Indictment

Daniel Carvalho, Cristiane Lucchesi and Mariana Durao, Bloomberg News

Changpeng Zhao, chief executive officer of Binance, speaks virtually during the Web3 Blockchain Festival in Hong Kong, China, on Wednesday, April 12, 2023. The conference runs through April 15. , Bloomberg

(Bloomberg) -- In the latest blow to Binance’s global ambitions, a Brazilian congressional committee has recommended the indictment of four of the company’s senior leaders, including its founder and CEO Changpeng Zhao.

The committee, which had been conducting a probe into crypto-related ponzi schemes in Brazil, can only make suggestions. Brazilian police will decide whether to proceed with actual indictments.

Read: Crypto’s Richest Man Faces Regulatory Crackdown, Brutal Crypto Winter

The committee accused Zhao and three local Binance employees of fraudulent management, of offering or trading in securities without prior authorization, and of operating a financial institution without authorization.

Binance is “surrounded by suspicion” in Brazil, lawmaker Ricardo Silva wrote in the report accompanying the committee’s recommendations on Monday.

In a statement sent to Bloomberg by email, Binance said it went to “great lengths” to actively collaborate with the committee. However, the exchange “strongly rejects any attempts to make Binance a target or even expose its users and employees with allegations of bad practices without any proof, amid competitive disputes given the company’s leadership position in Brazil and in the world.”

The committee - which is comprised of 28 lower house representatives - further recommended that the Federal Public Prosecutor’s Office scrutinize the tax compliance of the crypto exchange’s local unit and a separate arm, Binance Capital Management.

The legislators also suggested that Brazil’s securities regulator, known as CVM, investigate Binance’s sale of derivatives despite receiving a stop order. Those ongoing transactions represented “a repeated violation of the securities market rules,” the committee said in its final report.

Binance’s Brazil unit is already facing a CVM probe related to its sale of derivatives. In August, the securities regulator rejected an offer of a settlement worth 2 million reais proposed by local Binance executives. As a result, the Brazil unit is facing further penalties and fines.

The crypto exchange is also in limbo regarding its proposed acquisition of Brazilian securities brokerage Sim;paul Investimentos, which it announced in March 2022. Binance said in a statement at the time that the transaction would “require the approval of regulatory authorities, including the Central Bank of Brazil.” Binance has not yet received that approval.

Read: Binance Exits Netherlands After Failed Registration Attempt

Pending rules in Brazil would require international exchanges to have proper local licensing, similar to European crypto regulation regimes that call for a registered domestic office. Binance has said that it has no particular global or regional headquarters.

The Brazil move comes as regulators in countries ranging from Australia to France to the US have trained their sights on the activities of the world’s largest crypto exchange.

Read: US Crypto Industry Closing Ranks Against SEC Over Binance Case

(Updates with additional context on Binance’s local operations in Brazil from eighth paragraph)